Label consumer surplus and producer surplus

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Reference no: EM13830417

There are two goods: computers and bananas. Both use labor and another factor that is specific to that sector (computer fabrication plants, and land suitable for banana plantations).

Compared to the rest of the world, Guatemala is relatively abundant in land suitable for banana plantations. That is, Guatemala has few computer plants and lots of banana growing land, while the rest of the world has lots of computer plants and little banana growing land. (Hint: In the questions below you need to use this information to figure out Guatemala’s comparative advantage and disadvantage goods, and what this implies for Guatemala’s autarky prices compared to the rest of the world.)

Finally, Guatemala is a very small country. This means that world prices for computers and bananas are unaffected by changes in Guatemala’s supply and demand for these goods. Initially the world prices are: computer = $1000. bunch of bananas = $10.

1. Suppose Guatemala has extremely high tariffs and so is in autarky. Draw a partial equilibrium supply-demand diagram for computers in Guatemala. Label consumer surplus and producer surplus.

Reference no: EM13830417

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